1. Water Policy in the Murray Darling Basin 21-22 October 2010 Discussant David Pannell ARC Federation Fellow

2. Jeff Connor

3. Will it help?  BCA in highly politicised debates  e.g. NBN – calls for BCA in hope it will look bad  How would a non-market study fare in a red hot political debate? Not very well.  Do policy makers want it?  Would people believe it?

4. Various reasons for non-adoption of NMV  Ignorance that it exists  No institutional framework for it to feed into  Prefer not to know – transparency creates constraints  Avoidance of transaction costs from controversy  High cost of doing it  Perhaps a judgement that value of the information would be modest  Suspicion due to controversy within economics  Satisfaction with existing methods  Preference for relying on expert or policy maker judgements  Timing – it would take too long for the policy time frame  Limitations on benefit transfer

5. Used for what?  Overall assessment of the policy  Prioritisation of options within the policy – targeting of effort and resources

6. Thilak Mallawaarachchi et al.

7. Which uncertainties included?  Aggregate rainfall  Allocation decisions

8. Uncertainties not included  Environmental outcomes  High uncertainty about environmental benefits from changes in water management – Mac Kirby  Human behaviour  Predicting which irrigators will sell water is essentially impossible – Peter Gooday  Political outcomes

9. Uncertainty about behaviour 'I can calculate the motions of the heavenly bodies but not the madness of the people.’ Isaac Newton, 1720

10. Challenge of communicating risk  Advising a govt department about metric for prioritising projects  They used weighted additive function, as is common in MCA Project score = w.Benefit + w.Risk (≈probability of success)  Proposed alternative Project score = Benefit  probability of success  Response: concern because this seems “more complex”

11. Risk and info issues are pervasive  Our attempt to deal with them in one context

12. Experience with INFFER  A BCA disguised as an “integrated assessment”  System intended to be acceptable to and usable by non-economists/non-modellers  Developed based on experience with various govt departments and 20 regional NRM bodies  As simple as possible, but still rigorous

13. Risk/information elements in INFFER  Elicits probabilities of project failure due to several risk factors  Overall project score is an expected value

14. Risk/information elements in INFFER  Scores information quality  Captures knowledge gaps  Requires explicit response to knowledge gaps

15. Risk/information elements in INFFER  Reduces risk of dodgy analysis by providing structured, guided approach with templates and elements automated  Encourages/facilitates parameter sensitivity analysis  Encourages feasibility phase at start of large projects  Encourages adaptive management  Update project assessment over time

16. Observations  The balance between rigour and usability is very challenging  Is subject to high uncertainty in itself!  Learning and adaptation over time  The best approach depends on capabilities of the relevant client organisations

17. John Quiggin

18. No cuts in allocations  “Communication failure”  Also some do understand and are focused on impact on “social infrastructure”  Local jobs  Supporting local population  Supporting local services and perhaps social capital

19. Risk bearing  NWI specified principles for risk bearing  Consistent with at least some reduced allocation  Was never a serious possibility  Even with govt offering to buy, very hot reaction  Political costs and transaction costs from reduced allocations would be larger  Basin plan position more politically realistic

20. Infrastructure  A politically-convenient alternative to buy-backs  Limits reduction in water to agriculture  2 to 4 times more expensive  Cost per job saved: $ millions

21. Spend on social infrastructure  Usually best for interventions to go for target outcomes directly  Needs more thought about specifics, particularly ongoing costs  A risk of such a program being distorted  Landcare – captured by facilitators  Emphasis on participation  Little attention paid to outcomes

22. Mac Kirby

23. Key messages  Expected future loss of water to new dams, plantations etc. is modest  Second half of 20 th century was relatively wet  History isn’t sufficient to guide future planning (characteristics of the drought)  Importance of amplifying effect of runoff  There are large uncertainties about climate change  Likely to see longer and drier droughts  Amounts to be saved by infrastructure may be modest